Pinpointing Foreclosure and Vacancy in the City of Des Moines A

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Pinpointing Foreclosure and Vacancy in the City of Des Moines A Powered By Docstoc
					Pinpointing Foreclosure and Vacancy in the City of
Des Moines: A Neighborhood Analysis of Sales and
Foreclosure Data for the Period 2006-2009




Suzanne Hemphill
Spring 2010
Advisor: Lynne Dearborn




                                                     1
Abstract
         The City of Des Moines is struggling to address the impact of foreclosure and resulting
property deterioration, vacancy, and blight. The City seeks an analysis of foreclosure and
discussion of strategies to best target funds for efficient revitalization throughout the City’s 55
neighborhoods and thousands of foreclosed homes. Literature highlights the immense costs
associated with foreclosure to municipalities, neighborhoods, and homeowners as well as the
potential for foreclosure to jeopardize community vitality, halt neighborhood revitalization
efforts, and erode property values in surrounding areas. This study utilizes records from
properties that completed the foreclosure process in 2006-2009 to map and analyze the properties
throughout the city and at the neighborhood level. I determined vacancy periods and added
USPS vacancy data to provide an image of existing vacancies. Utilizing records for 2008-2009,
I compared debt on foreclosed homes with assessed value and by most recent resale price. By
identifying homes and areas least likely to recover without subsidy, the city is more able to target
funds and stabilize neighborhoods. The report provides recommendations for the City of Des
Moines and suggests directing future efforts to the most vulnerable areas of the city and the most
vulnerable housing stock. Des Moines is representative of other mid-sized cities struggling to
address foreclosure and revitalize neighborhoods. A focused approach, as outlined in this report,
can help city officials identify vulnerable neighborhoods and housing stock that is unlikely to
recover without subsidy.




                                                                                                  2
Introduction
         While Iowa has traditionally avoided the extremes of boom and bust periods, recent high
foreclosure rates in Iowa have severely impacted families, neighborhoods, and cities. In October
2008, the City of Des Moines, Iowa’s largest metropolitan area, ranked 16th nationwide among
cities with the highest foreclosure rates. For that period, Iowa’s foreclosure rate was 1.98
percent, compared with the national average of 1.22 percent (Mallach, 2009).
         Nationwide as millions of homes have been foreclosed and millions more loans sit in
default, the foreclosure crisis is far from over. 1 The City of Des Moines is struggling to address
the impact of foreclosure and resulting property deterioration, vacancy, and blight. With limited
resources and thousands of foreclosed properties, the city is interested in how best to target local
and federal funds for efficient results throughout the City’s 55 neighborhoods and thousands of
foreclosed homes. As foreclosure threatens community vitality, halts neighborhood revitalization
efforts, and erodes property values in surrounding areas, municipalities need methods to better
understand the effects of foreclosure and aid in recovery. This report outlines the foreclosure
crisis, national response, and the local dynamics. It also reviews the literature surrounding
foreclosure, abandonment, and blight and provides recommendations to the City of Des Moines
concerning resources to address foreclosure and vacancy in the city.

National Context of Homeownership and Foreclosure
        The wave of home foreclosures in the 2000s began with changes in financial regulation in
the 1990s (Immergluck, 2009). The expanding loan market in the mid 1990s brought subprime
loans and expanded homeownership opportunities to millions of homeowners who previously
did not qualify for prime loans. Subprime loans are mortgage loans made to individuals that do
not qualify for prime loans, which require good credit and high FICO scores. Subprime loans are
characterized by higher interest rates, sometimes complicated by prepayment penalties or rapidly
increasing interest rates. The Federal Reserve classifies subprime loans as loans with an interest
rate three percentage points higher than the US Treasury bond rates, with the same term. Prime
loans are made to borrowers with good credit scores and provide the best available interest rate.
The rise of subprime loans can be attributed to changes in lending practices. Subprime loans
were bundled by banks and sold to investors who purchased shares of the marketable securities.
Servicers were used to manage the loans. The seemingly insatiable appetite for new securities
led to increasingly risky loans. Many have characterized the rise of the subprime market as a
“race to the bottom” (Madigan, 2007), with homeowners and communities suffering.
        Refinancing was common throughout the US in the 1990s and 2000s, especially in
regions with rapidly appreciating housing values. Some of the exotic loan products used
included “no-doc” loans which allowed borrowers to qualify for loans without documenting their
income, employment, or debt. Adjustable rate mortgages (ARMs), while first introduced in
1982, grew in popularity in the 1990s and 2000s, with low introductory interest rates for the first
two years and “exploding” interest rates, as well as negatively amortized mortgages. Negative

1
    Credit Suisse 2008, estimates an additional 8 million foreclosures over the period 2008-2012.

                                                                                                    3
amortization occurs when loan payments are insufficient to meet the interest incurred over the
payment period, causing the loan’s outstanding balance to increase over time, not decrease.
Negative amortization loans frequently occur as adjustable rate mortgages because ARMs reset
with higher interest rates. Many home loans in Iowa were characterized by “…loose
underwriting and high levels of origination fraud” (Madigan). Homeowners were able to
refinance and access some of the home’s equity as a means to consolidate debt and to increase
cash available for consumer purchases. Subprime lending increased buyer’s purchase power,
contributing to inflated home prices (Immergluck). The burst of the housing bubble left millions
of homeowners upside down on their mortgages, as they owed more than their homes were
worth.
         Another contributor to the rise in mortgage defaults is predatory lending practices. There
are documented cases of predatory lending targeted to elderly, low-income, and minority
households. Indeed, 30 to 50 percent of all subprime borrowers qualified for less expensive
loans than the loans sold to them (Mallach, 2008). Predatory lending refers to a variety of
fraudulent and deceptive activities. There is no absolute definition of predatory lending, but it
can include abusive loan terms and deceptive behavior, which exacerbate existing information
asymmetries (Engle and McCoy, 2002). Informational asymmetries exist when sellers have
access to information that homebuyers do not. The FDIC defines predatory lending as
“imposing unfair and abusive loan terms on borrowers” (Challenges and FDIC Efforts Related to
Predatory Lending, 2006).
         These unconventional financing mechanisms appeared to work for many homeowners as
long as buyers were able to refinance and home prices continued to rise. In 2006, as the housing
bubble burst, borrowers faced rising interest rates and falling home values. The 15 million
subprime loans made were in jeopardy, and the foreclosure crisis began (Mallach, 2008). The
resulting fallout and housing market instability have led officials and policymakers to reexamine
the utility of these unconventional lending tools and undertake neighborhood stabilization
programs in the wake of large-scale default. Changes in the credit markets provide context for
the rise of foreclosure in the City of Des Moines.

Foreclosure in Des Moines, Iowa
        High foreclosure rates in the City of Des Moines have resulted in losses to individual
families and communities and left behind blighted and abandoned properties for the municipality
to maintain. Foreclosed homes that have not been properly maintained degrade an area—front
lawns filled with weeds, broken windows, mold warnings, and boarded up homes blemish
neighborhoods and blocks. Foreclosure in Des Moines threatens multimillion dollar
revitalization efforts, destabilizes the tax base, and jeopardizes quality of life through increased
physical and social disorder. Municipalities need a more complete understanding of
neighborhood trends to aid in recovery and direct policy and future investments. This report
evaluates the impact of foreclosure on property values, neighborhood vitality, and property tax



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revenues in the City of Des Moines and offers recommendations on effective ways to reverse
these trends in the city.
        Responding to rising foreclosure rates, City of Des Moines staff began tracking
properties sold at sheriff sale, beginning in 2006. These properties completed the foreclosure
process and were sold at auction by court order. 2 See figure 1 for trends in properties sold at
sheriff sale. While there is some fluctuation in the number of properties completing foreclosure
in the 2000s, the foreclosure trend in Des Moines is clear and rising. This provides an indication
of the hundreds and potentially thousands of loans in default, headed towards delinquency,
foreclosure, and sheriff sale.

Iowa’s Foreclosure Process
        The most recent figures paint a bleak picture for Iowa’s housing recovery. In the fourth
quarter of 2009, 10.1 percent of home loans in Iowa were delinquent or in foreclosure (Eller,
2010). This figure is lower than the national delinquency rate of 15 percent, but forecasts
thousands more foreclosures, followed by a period of vacancy and home deterioration
throughout the state. Delinquency occurs the first time a homeowner misses a payment or stops
payment. Default varies, but typically occurs after three successive missed payments. Default
triggers legal action from a lender to begin the foreclosure process.
        Foreclosure processes vary from state to state. Foreclosure is a legal process initiated by a
creditor; it is used to reposes collateral for a mortgage in default. Prior to foreclosure, loans are
classified as delinquent, meaning 30, 60, or 90 days late. Foreclosure legal proceedings begin
when a lender files a Petition of Foreclosure; in Iowa, this is typically after 91-365 days (City of
Des Moines, 2008). Nationwide there are two primary means of foreclosure: foreclosure by
judicial sale and statutory foreclosure. Judicial foreclosures require court action and a final
judgment of foreclosure. Judicial foreclosures occur when a mortgage holder files a lawsuit to
obtain court approval to foreclose on a property. Foreclosure in Iowa is the result of judicial
processes, or an alternative non-judicial foreclosure, whereby borrowers convey all their rights to
the property to the lender. Some states have statutory foreclosure laws which do not require court
action.




2
  Properties sold at a sheriff sale have parcel specific information increasing accuracy and preventing duplicate data,
as properties may have multiple foreclosure petitions. However, using properties from sheriff sale as indicators of
foreclosure makes it difficult for officials to gauge the number of properties in the foreclosure pipeline.

                                                                                                                      5
Figure 1: Properties sold at sheriff sale rise 3

    900

    800

    700

    600

    500

    400

    300

    200

    100

      0
          2000   2001   2002    2003    2004    2005    2006    2007    2008    2009

Source: City of Des Moines and Polk County Sheriff’s Office



        The foreclosure process in Iowa begins with day 1: no payment on a mortgage. The
lender imposes late fees and may attempt to contact the borrower. Around day 45-90, the lender
will send a Demand/Cure Letter demanding payments within a specified time period. The
homeowner has 30 days to make the loan current, after which the lender will initiate foreclosure
proceedings. After 91-365 days without payment, the lender files a Petition of Foreclosure with
the court. At any point after a petition of foreclosure has been filed and before a judgment is
rendered, Iowa law allows borrowers to file a Demand for Delay of Sale, which provides a six
month delay. After the delay period without payment in full, the court orders a Decree of Sale,
eliminating the mortgage. The borrower has until sheriff sale to pay off the entire balance of the
mortgage, including late penalties and legal fees. Lenders also have discretion to reinstate the
mortgage. Without payment, the property is auctioned off at the county sheriff’s sale. In Iowa,
the mortgager gets the first sealed bid at auction; the sealed bid is frequently set near the debt
amount and varies depending on market conditions and ease of reselling the property. See figure
2 for more specifics on foreclosure processes in Iowa. Compared nationally, Iowa’s foreclosure
process is one of the longest in the country, at an average of 273 – 312 days from “foreclosure
referral to sale.” Foreclosure referral is the date of petition for foreclosure, filed with the District
Court (Crews Cutts and Merrill, 2008).




3
  Note: Properties completing sheriff sale in 2008 declined because the Sheriff’s Department lacked capacity and
limited the number of properties that could be sold to 20 per week. This artificially shrunk the number of
foreclosures in the city and county.

                                                                                                                   6
Figure 2: The foreclosure process in Iowa




Source: Author, 2010.




                                            7
Des Moines 4
        The City of Des Moines is Iowa’s largest city and the state’s capitol (population of
197,052). 5 Des Moines is located within Polk County, an area that has experienced consistently
positive population growth since its formation in the 1840s. Polk County has historically led the
region and state in population growth, educational attainment, employment opportunities, and
economic prosperity. Des Moines operates as part of a larger region, with commuting for
housing and employment opportunities. The population of the Des Moines-West Des Moines
metropolitan statistical area in 2009 was 562,906.
        From 1970 to 2000, Polk County experienced significant growth and expansion, as the
workforce nearly doubled during this 30-year period. Data trends from the 1970s to 2000 show
increasing commuting patterns. The jobs-to-residents ratio in 2000 was 1.18, meaning there
were more jobs than working residents. Polk relies on workers from outside the county, and
attracts workers from each of its border counties.
        From 1990 through 2008, Polk County’s unemployment rates remained two to three
percentage points lower than the national average. Iowa’s historic pattern of low unemployment
rates are echoed in Polk County; from 1976 through 2008, Iowa nearly always had lower
unemployment rates than the nation.
        Iowa is a racially homogenous state. Compared nationally, 77 percent of the US
population is white, 95 percent of Iowans are white. Compared with the state’s homogeneity,
Polk County shows increased racial diversity. Greater racial diversity (as compared with the
region and state) is found in Latino or Hispanic populations and most single race categories
(except Asian persons). This increased diversity may be explained by Polk’s status as an
employment center and the state’s largest metropolitan area. Polk County presents some
incidences of racial concentration. Polk County accounts for 12.8 percent of Iowa’s total
population, but 29.3 percent of Iowa’s African American population. All non-white (alone)
racial categories are over represented in Polk County, as compared to the state, except American
Indian or Alaska Native.

Federal response to foreclosure
        Congress, under the Housing and Economy Recovery Act of 2008, created the
Neighborhood Stabilization Program (NSP) to help stabilize communities that were feeling the
effects of foreclosure and abandonment. The $3.92 billion program provided a minimum of $19
million to each state and direct formula allocations to Community Development Block Grant
(CDBG) entitlement cities based on the foreclosure and vacancy rates, property values, and the
number of subprime loans. Cities received direct allocations if the formula resulted in an
allocation over $2 million. No city in the State of Iowa qualified for a direct allocation; instead
Iowa received $21.6 million as a whole. The City of Des Moines received an allocation of $3.92

4
  Data for this section come from the US Census, US Bureau of Labor Statistics County Business Patterns, and the
REIS database local unemployment table.
5
  American Community Survey population estimates, 2008.

                                                                                                                   8
million from the state. To aid communities, NSP1 funds must be allocated within 18 months and
spent within 4 years. Funds can only be used on properties that meet definitions of foreclosure
and/or abandonment.
Iowa’s Department of Economic Development (2009), responsible for distributing and
monitoring Iowa’s NSP round I funding, defines abandoned, foreclosed, and blighted properties
as follows:

        Abandoned: Mortgage/tax foreclosure proceedings initiated, no payments 90 days and
        vacant 90 days
        Blighted: Objectively determinable deterioration that is a threat to human health, public
        safety and/or public welfare
        Foreclosed: Mortgage/tax foreclosure complete, includes title transfer from former owner

The State of Iowa imposed additional restrictions to target funds, including limiting the NSP
project area to 25 percent of the land area in the City of Des Moines (see figure 3). These areas
represent recognized neighborhoods with the highest quartile in the number and percent of
foreclosures in 2007-2008 and areas outside of recognized neighborhoods with a HUD
foreclosure risk score of 10 or greater. 6
        NSP funds are limited to assist individuals earning below 120 percent of area median
income (AMI), with 25 percent of funds benefitting individuals earning below 50 percent AMI.
The State of Iowa restricted funds to an NSP project area, to focus the impact of funds on
neighborhoods most in need. In December of 2008, City of Des Moines staff, created a coalition
of housing providers to implement the neighborhood stabilization program. Original estimates
for the program sought to acquire 90 properties to rehabilitate 50 homes and demolish 40
structures, half of which would be land banked and half of which would have new construction
over four years. NSP1 funds have been allocated based on the project area and coalition
members. However, the effect of foreclosure, vacancy, and blight will be felt for years to come.
See figure 4 below for the distribution of foreclosures throughout the city. This report seeks to
aid the City of Des Moines by providing more information about foreclosure trends and the
impact on Des Moines’ neighborhoods for future revitalization efforts and funding opportunities.




6
 The HUD Foreclosure Risk Score refers to block groups and the estimated foreclosure rate and percent of
addresses vacant, as reported by HUD.

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Figure 3: Neighborhood Stabilization Program Project Area




Source: City of Des Moines, Neighborhood Stabilization Plan Summary. February 23, 2009.




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Research questions and methods
        Over the summer of 2009, I interned with the City of Des Moines’ Neighborhood
Development Department working with the City’s $3.9 million allocation of Neighborhood
Stabilization Program funds. Throughout the summer, I helped city staff evaluate eligible NSP
properties as well as track and map citywide foreclosure for redevelopment efforts. City staff
then expressed interest in a more thorough analysis of foreclosure in the City of Des Moines.

Research questions:

   •   What were the foreclosure trends (in absolute numbers and percentages) in Des Moines’
       neighborhoods?
   •   What is the average vacancy period for foreclosed homes?
   •   How long does it take foreclosed homes to be resold, after foreclosure is completed?
   •   How does the sale price at sheriff sale compare to the home’s debt and assessment?
   •   What is the impact on property values in areas with foreclosure?

         I utilized available foreclosure data from completed sheriff sales 2006-2009. City of Des
Moines staff provided 3,010 foreclosure records from 2006-2009, as reported by the Polk County
Sheriff’s office. 662 of these records lacked property specific information. Some of the reported
sales were bulk property sales that did not contain address specific information or geo parcel
numbers. Some of the records could not be matched with the Polk County Assessor’s database
of parcels in the city. These records were added to the overall foreclosure count and citywide
rate, but were not allocated to neighborhoods. Best efforts were made to match all foreclosure
records with parcels in the city.
         Foreclosed properties were mapped and analyzed at the neighborhood level, a unit of city
interest and investment. With the properties mapped, spatial software was used to determine the
significance of the distribution of foreclosures. The properties were then matched by their
unique geo parcel number to the Polk County Assessor’s database of parcels in the City of Des
Moines. The Assessor’s office database provides property characteristics such as property
condition, square footage, age of structure, assessed value, and number of bedrooms and
bathrooms. This report utilizes assessed values as reported by the Polk County assessor’s office.
Assessed values can differ from property appraisals and market value. However, assessed values
reflect the taxing capacity of the municipality and illustrate long-term threats to the tax base as
sales values differ from assessments. I compared physical characteristics of properties that
completed the foreclosure process in 2006-2009 with citywide property attributes. Vacancy
periods were determined by matching foreclosed homes with the Assessor’s residential home
sales data from 2006-2009. USPS vacancy data were added to provide more information on
existing vacancies. HUD foreclosure estimates were added to provide estimates on projected
foreclosures.




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Literature Review
        Foreclosure results in significant costs to individual homeowners, lending institutions,
surrounding properties, and municipalities. The Iowa Attorney General’s office estimates costs
associated with foreclosure in Iowa at $80,000 per foreclosure, including losses to the
homeowner, community, and lender (Madigan). Foreclosed homes can also entail a series of
secondary effects related to vacancy and property deterioration. Foreclosed homes can attract
criminal activity, lower property values, and increase expenses to the local government
(Immergluck). These costs are greater in areas with a weak housing market, where homes
remain vacant for comparatively long periods of time. Foreclosed homes that remain empty and
begin to deteriorate send signals of physical disorder, “signs of negligence and unchecked decay”
to the neighborhood (Skogan 1990 as cited in Immergluck and Smith, 2006). The impact of
foreclosure and the resulting vacancy can severely impact a neighborhood; foreclosure on one
block can lead to disinvestment, negatively impacting all of the homes in the area. Physical
decay contributes to the “broken window” theory. Based on Albert Biderman’s 1967 report to
the President’s Commission on Law Enforcement and Crime, “fear of crime was strongly related
to the existence of disorderly conditions in neighborhoods and communities” (Kelling and Coles,
1998). The theory was further discussed by Wilson and Kelling (1982) to address the
relationship between small incidences of vandalism and blight and an increase in urban decay
and physical disorder. The theory suggests that incidences of vandalism and disrepair and other
anti-social behaviors lead to more incidences. Meaning, one incident of disorder, a broken
window, or a little graffiti, will lead to other incidences. Wilson and Kelling suggest leaving the
window broken sends a message of disrepair. This also suggests that addressing minor issues
will deter crime and anti-social behavior. This theory can be applied to urban blight and decay,
and potentially explain neighborhood decay and disinvestment. The broken window theory
should encourage communities to take action and address urban blight at all levels.

Costs to municipalities
        Apgar and Duda examined the impact of foreclosure to outsiders—those not directly
involved with the loan and property, including municipalities, nearby properties, and investors
(2005). Outsider costs vary based on foreclosure rates, property condition, and existing public
services. These costs can include: increased demand for public safety services related to vacant,
foreclosed properties which attract illicit activities, arson, and gang activity. Maintenance costs
include addressing illegal dumping, weed removal, and potential demolition of the structure.
Property decay and resulting demolition can reduce tax revenues until the land is redeveloped.
        Foreclosure related costs to municipalities can be quite steep, Moreno (1995) found
foreclosure costs to the City of Minneapolis were $27,000 per property in lost tax revenues and
potential lost subsidy. Apgar and Duda researched five general scenarios for foreclosed
properties and the municipal response in Chicago. Under the various scenarios, the costs ranged
from $430 per foreclosed property to nearly $35,000 if a property was damaged by fire. The
costs to municipalities include building inspections, court costs, notification costs, police


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response calls, demolition, fire suppression, trash and weed removal, as well as losses in property
taxes, utility taxes and unpaid user fees. While further investigation is needed to understand costs
associated with foreclosure for jurisdictions in Des Moines, the research of Apgar and Duda
showcases the likely costs to municipalities.

Impact on property values
        The end result of foreclosure may make some areas less desirable for homebuyers, result
in stagnant property values, reduce growth in tax revenues, and reduce the long-term desirability
of neighborhoods and communities. Lin and Liu (2007) found foreclosed properties typically
have a discount rate around 23 percent to facilitate a sale, compensate for additional risk, and
address potential property deterioration. Beyond immediate property discounts, foreclosure can
lead to many other negative effects including vacancy, blight, property dilapidation,
abandonment, increased criminal activity, and neighborhood deterioration. These negative
effects influence foreclosed properties as well as nearby properties. Falling property values can
reduce tax revenues to the local school district, city, and county.
        Numerous studies have shown that foreclosures diminish nearby property values, with the
impact greater in areas with more foreclosures. Immergluck and Smith (2006) found
foreclosures result in a 0.9 to 1.14 percent decline in property value for single family homes
within an eighth of a mile. These losses add up to large amounts of lost property value, perhaps
reaching a billion dollars for homes in Chicago. With home sales prices in Chicago averaging
$164,599, homes within an eighth of a mile of a foreclosed property saw their home values
decrease by $1,870. Lin, Rosenblatt and Yao found foreclosure within a 0.9 km radius (2700 feet
or approximately 10 blocks) can depress property values in the neighborhood by 8.7 percent, per
event (2009). The foreclosure spillover effects decrease with time and distance. Cotterman (as
cited in Leonard and Murdoch 2009) found increasing default rates within a census tract resulted
in an estimated 14 percent reduction in home prices. Moreno found foreclosure costs to
neighbors, in reduced property values, were $10,000. The decrease in property values is
associated with the broken window theory of physical disorder. Indicators of decay and neglect
contribute to social disorder and attract criminal behavior due to the perception of decreased
concern about public safety and criminal occurrences. Increasing physical disorder and
associated social disorder reduces desirability of nearby properties.
        Iowa’s Attorney General estimates a $50,000 loss to lenders, per foreclosure (Madigan).
This figure suggests a likelihood that homes valued below $50,000 will be abandoned by banks
and remain in legal limbo for years. These vulnerable properties include 2,725 residential
parcels with dwellings that have a total assessed value below $50,000. Additionally, those in
foreclosure may stop paying property taxes. Unpaid property taxes trigger a tax lien process
whereby the property tax bill is auctioned off. The person who pays the tax bill gains title to the
property after paying off three years of unpaid taxes. This results in a lengthy process, requiring
years for the city to acquire title to the property and address the destabilizing effect.



                                                                                                 13
Disproportionate impact on minority communities
        In many areas, expanding loan markets and risky lending practices were steered towards
minority and lower-income neighborhoods. The 2007 report, Paying More for the American
Dream conducted a multi-state analysis of housing in six metropolitan regions: Boston,
Charlotte, Chicago, Los Angeles, New York, and Rochester (Campen et al.). The analysis found
disparities in the cost of borrowing: Latino borrowers were 3.6 times more likely than white
borrowers to receive a higher-cost mortgage; African American borrowers were 3.8 times more
likely. While homeownership remains desirable for personal wealth creation, investment in local
housing stock, and as a means to stabilize neighborhoods, the costs of homeownership vary.
There is significant evidence that mortgage brokers promoting subprime mortgage products
targeted African American household and neighborhoods, “By 1998, subprime lenders
dominated the refinance market in Black neighborhoods across the country. Subprime lenders
made 51% of refinance loans in predominately Black census tracts compared to only 9% in
predominately White tracts” (US Department of the Treasury & US Department of Housing and
Urban Development 2000, as cited in Immergluck). The targeting of more risky, subprime loans
with higher default rates to minority neighborhoods suggests a disproportionate impact on these
areas. Apgar and Duda:

       “The fact that foreclosures on failed nonprime loans impose un-recovered costs on
       entities outside the mortgage transaction means that higher-risk lending practices impose
       a greater burden on society than prime lending. Given that foreclosures tend to cluster in
       low-income and/or minority neighborhoods, many of the outside effects are concentrated
       among the nation’s most vulnerable households.”

Recovery efforts must recognize the disproportionate impact lending practices have had on these
lower-income and minority communities. Revitalization efforts should target these areas in need
of subsidy.

Neighborhood Revitalization Program
         In 1990, Des Moines’ City leaders utilized the expertise of the consulting firm Stockard
& Engler Inc. (S&E) to create a new vision for revitalization within the city. The report, now 20
years old, focused on developing a framework for neighborhood revitalization to effectively
target areas with limited resources. The work of S&E led to the creation of the Neighborhood
Revitalization Program (NRP) and a new direction for city investments and redevelopment
efforts. The S&E report encouraged neighborhood level investments and the classification
system now used by the City, to formally recognize neighborhoods and create local action plans,
which build neighborhood strength and capacity. The City formally identifies neighborhoods as
recognized, designated or chartered based on local capacity and needs. Neighborhoods are
defined by a variety of factors including geographic boundaries, shared spaces such as schools
and parks, architectural styles, existing infrastructure, or man-made boundaries.


                                                                                               14
        The original report led to the creation of the Neighborhood Finance Corporation (NFC), a
501(c) (3) which collaborates with residents, governments, businesses, and community based
organizations to provide “unique lending programs and related services to targeted neighborhood
revitalization” throughout Polk County. The NFC helps to revitalize targeted neighborhoods
selected by the County Board of Supervisors and Des Moines City Council. Since 1991, NFC
has originated over $198 million in loans and grants throughout Polk County.
        Today, Des Moines has 55 recognized neighborhoods that comprise the majority of the
city. Neighborhoods remain an important unit of analysis that capture local dynamics, gauge
neighborhood desirability, and serve as a means of receiving support and funds from the city.
        Stockard & Engler’s 2005 report recognized that since the Neighborhood Revitalization
Program’s inception in 1990, Des Moines’ housing stock and neighborhood conditions have
improved, but “not all neighborhoods have moved in a positive direction.” The report builds on
the analysis of Des Moines’ neighborhoods from 1990 to present, and suggests targeting city
investments to a limited number of neighborhoods for the greatest impact, to address “problems
that had the most negative effect on neighborhood confidence.”

Foreclosed Property Analysis
        There are various approaches to address foreclosure, vacancy and blight. A part of
determining an appropriate response to foreclosure is gauging the impact throughout the City of
Des Moines’ neighborhoods. Over the period of study there were 3,010 parcels foreclosed, out
of the city’s 73,677 total parcels, resulting in a foreclosure rate of 4.08 percent (see figure 4 and
5). Figure 4 shows the foreclosed parcels in the city. The Des Moines and Raccoon Rivers were
added to help explain some of the distribution of parcels. The grey area represents the Floodway
District overlay; residential dwellings are not permitted in this area. Table 1 provides detailed
information about foreclosure rates by neighborhood and year. These foreclosed parcels account
for one percent of Des Moines’ total parceled land.
        One possible approach to neighborhood stabilization is to focus efforts on neighborhoods
with the greatest percentage of foreclosure to properties (see table 2 and figure 5). This
technique would focus stabilization efforts on Sherman Hill (12.1 percent) and Chautauqua Park
(8.2 percent) as well as the Fairground neighborhood, which consistently had foreclosure rates
above five percent of the neighborhood’s homes. Additionally, Merle Hay, with 5,179
households, is the largest neighborhood by number of households. Merle Hay experienced high
foreclosure rates in 2007 and 2008. Looking at yearly foreclosure rates, Highland Park annually
experienced foreclosure rates above six percent, foreclosure in Indianola Hills ranged from four
to six percent, and foreclosure in Union was consistently above 4.5 percent. Somerset, a smaller
neighborhood with only 245 homes, had a high foreclosure rate (5.3 percent) from its 13
foreclosures.




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Figure 4: Foreclosure in Des Moines, by parcel
# Neighborhood
 0 BNA & DNA
 0 BNA, DNA, & WPNA
 1 ACCENT
 2 Arbor Peaks
 3 Beaverdale
 4 Brook Run
 5 Capitol East
 6 Capitol Park
 7 Carpenter
 8 Chautauqua Park
 9 Cheatom Park
10 Douglas Acres
11 Downtown Des Moines
12 Drake
12 Drake
13 Drake Park
14 East Village
15 Easter Lake Area
16 Ewing Woods - Evergreen
17 Fairground
18 Fairmont Park
19 Grays Lake
20 Greenwood Historic
21 Highland Park
21 Highland Park
22 Hillsboro
23 Indianola Hills
24 Ingersoll Park
25 King Irving
26 Kirkwood Glen
27 Laurel Hill
28 Linden Heights
29 Lower Beaver
30 Magnolia Park
31 Martin-Hickman
32 Martin Luther King Jr. Park
33 McKinley School/Columbus Park
34 Meredith
35 Merle Hay
36 Mondamin Presidential
37 North of Grand
38 Oak Park
39 Pioneer Park
40 Prospect Park
41 River Bend
42 Salisbury Oaks
43 Sheridan Gardens
44 Sherman Hill
45 Somerset
46 South Park
47 Southwestern Hills
48 Union Park
49 Valley High Manor
50 Waterbury
51 Watrous South
52 Waveland Park
53 Waveland Woods
54 Westwood
55 Woodland Heights




                                                 16
Figure 5: Neighborhood foreclosure rate as a percentage of all parcels




Source: Polk County Sheriff Sale data, 2006-2009. City of Des Moines 2009 parcel data and neighborhood
boundaries. Note: The areas not included in formalized neighborhoods were excluded from this analysis.




                                                                                                         17
Table 1: Foreclosure rate by neighborhood 7




Source: Polk County Sheriff Sale data, City of Des Moines 2009 parcel data and neighborhood boundaries.
Foreclosure rates above 4.5 percent are highlighted.




7
 In 2006, the Sherman Hill neighborhood had a high incidence of foreclosure, with 51 homes foreclosed. The
available dataset provide no explanation, but suggest further research and interviews with lenders, homeowners, and
community members.

                                                                                                                18
Table 2: Foreclosure 2006-2009




Source: Polk County Sheriff Sale data, City of Des Moines 2009 parcel data and neighborhood boundaries.

                                                                                                          19
        To analyze the distribution of foreclosed parcels in Des Moines, I utilized the average
nearest neighbor tool in ArcGIS. This rendered an observed mean distance between foreclosed
properties of 141.2 and an expected distance of 187.1, for a nearest neighbor ratio of 0.75. The
foreclosures are significantly clustered with a less than one percent likelihood that the pattern of
foreclosures could have resulted from random chance. This outcome is expected because homes
and neighborhoods have patterns based on geographic features and development restrictions.
Figure 6 shows the clustering of foreclosures per acre, suggesting investments in areas with the
greatest density of foreclosure.

Figure 6: Foreclosure density




                                                                                                  20
Secondary effects of foreclosure: Vacancy, blight, and abandonment
        As communities struggle with the growing inventory of foreclosed homes, the secondary
effects of foreclosure—vacancy, blight, and abandonment— pose new challenges. In the end,
these secondary effects may far outweigh the initial losses to homeowners and lenders.
Foreclosure itself does not dictate vacancy, but Iowa’s lengthy foreclosure process creates
lengthy vacancy periods which can lead to rapid property deterioration. Iowa has one of the
longest foreclosure processes in the nation (see figure 7). This is partly due to Iowa’s judicial
foreclosure laws, which require court action. Lengthy foreclosure processes lead to vacancy and
property deterioration, as properties hang in limbo between homeowners and banks. A long
vacancy period allows more time for potential property decay and physical disorder. The
existing desirability and housing demand for a neighborhood impacts the area’s ability to
rebound from foreclosure. Property maintenance reflects how lenders and servicers value the
property, “The greater the value perceived in the property, the greater care the servicer will take
to maintain both the quality and the value of the property being foreclosed” (Mallach, 2009). In
weak markets, lenders routinely fail to secure, weatherize, or maintain properties, leading to
rapid property deterioration.


Figure 7: States by number of days from foreclosure referral to sale




As published by Mallach, 2009. Source: Analysis by Amy Crews Cutts and William A. Merrill, Interventions in
Mortgage Default: Policies and Practices to Prevent Home Loss and Lower Costs.” In Borrowing to Live
(Brookings/JCHS, 2008). Based on Freddie Mac data. Foreclosure referral is defined by date of petition for
foreclosure, filed with the District Court.



                                                                                                              21
Figure 8: Vacancy periods on foreclosed homes throughout Des Moines




                                                                      22
        Des Moines has a high vacancy rate; it ranks among the top metro areas with vacancies
over 7 percent (Mallach, 2009). Of the 3,010 properties foreclosed in 2006-2009, 29.2 percent
were not resold by 2010. Meaning, nearly three out of ten homes foreclosed on in the City of
Des Moines from 2006-2009 remained vacant as of 2010. 8 The vacancy period for foreclosed
homes ranged widely, from zero to 1,406 days, with an average vacancy period, for homes sold
after foreclosure, of 309 days. However, the standard deviation was 268 days, meaning there
was a tremendous amount of variation in the number of days a property remained vacant. See
figure 8 for the distribution of homes and vacancy periods throughout the city.
        Table 3 captures vacancy periods at the neighborhood level. The homes with the longest
vacancy period—over two years—were scattered throughout the city, with no overall
concentration in one neighborhood. Fairground, Union Park, and the ACCENT neighborhood all
had at least 20 homes that remained vacant for a period of one to two years. These figures were
not normalized to account for the number of parcels in each neighborhood. Interestingly, these
neighborhoods also had some of the largest number of homes sold in less than 90 days, which
reflects the high number of foreclosures in the area. Figure 9 shows median vacancy period by
neighborhood. The median reflects the middle value for vacancy period, halfway between the
upper and lower most values, and reduces the effects of outliers.




8
 Vacancy determined by Polk County Assessor’s Sales Data for 2006-2009. 879 of 3,010 foreclosed properties
were not resold by January 1, 2010.

                                                                                                             23
Figure 9: Median vacancy period after foreclosure




                                                    24
Table 3: Vacancy periods by neighborhood




Source: Polk County Sheriff Sales 2006-2009, Polk County Assessor’s Residential Sales Data, 2006-2009.




                                                                                                         25
        Vacancy and the potential resulting property deterioration, abandonment, and blight can
severely impact neighborhood stabilization and property values. Finding vacancy periods is an
important step in identifying the impact of foreclosure. To determine vacancy, I used the date of
sheriff sale (the point at which homeowners lose title), as a proxy for homeowners vacating their
homes. While homeowners may choose to vacate properties prior to losing title, sheriff sale is
the point at which homeowners must leave. Foreclosed properties were then matched with
assessor’s sales data to determine the next sale date, title transfer, and resulting occupancy.
        The carrying costs of foreclosure for communities—decreases property values and tax
revenues, as well as vacancy and blight issues which can plague neighborhoods “increase
significantly for properties that are not quickly returned to the market via regular mechanisms”
(Immergluck and Smith). Addressing the impact of foreclosure requires expediting Iowa’s
foreclosure processes; however, these changes in state law are outside of the purview of this
report. City staff noted that homes are frequently vacated prior to sheriff sale, perhaps months or
even a year before the homeowner loses title to the property. The home then sits vacant for an
even longer period of time, contributing to property deterioration.
        Foreclosure-related or not, vacant properties threaten neighborhood vitality and
redevelopment efforts. Therefore, it is necessary to examine Des Moines’ existing vacant
properties. Beginning in November 2005, the United States Postal Service (USPS) began
recording addresses that did not collect their mail for 90 days or longer. This data is available at
the Census tract level. Figure 9 below provides residential vacancy rates for Polk and Warren
counties. Des Moines is primarily located in Polk County, but extends to parts of Warren
County. The figure shows vacant properties in the two counties concentrated in the urban core
and the City of Des Moines.
        A closer examination of vacancy rates in Des Moines’ neighborhoods shows clustering of
high vacancy rates (see figure 10). The following neighborhoods experienced vacancy rates
above seven percent: Capitol East, Capitol Park, Drake, East Village, Indianola Hills, Martin
Luther King Jr. Park, McKinley School/Columbus Park, Mondamin Presidential, North of
Grand, River Bend, Woodland Heights, and Watrous South.




                                                                                                 26
Figure 9: Residential vacancy rate in Polk and Warren County, concentrated in Des Moines




                                                                                           27
Figure 10: Residential vacancy rate in Des Moines




                                                    28
Figure 11: Foreclosure and residential vacancy rate in Des Moines




                                                                    29
Analysis of foreclosure records: Debt, purchase price, and assessment
         Data on the foreclosure debt amount, property assessment, and purchase price at sheriff
sale provide a better understanding of financing and loan risk. These data were only available
for part of the study period, 2008-2009. Still, they provide a valuable snap shot. Of the 1,343
foreclosures examined, the mean sale price at sheriff sale was $85,337, with a standard deviation
of $41,455 (see Table 4). Foreclosure debt, sale price at sheriff sale, and 2009 assessment all
contain variability. The overall debt was 115 percent of current assessed value. Most homes
foreclosed in 2008-2009 owed 15 percent more on their mortgage than the value of their home.
In total, the foreclosure debt amount exceeds assessment value by $12.6 million.
         The neighborhoods with the lowest average sales values at time of foreclosure (sheriff
sale) were: Carpenter, $40,727; Cheatom Park, $47,151; Mondamin Presidential, $50,127;
Laurel Hill, $59,882; and Capitol East, $60,062. The areas with the greatest average difference
include the Hillsboro neighborhood, where the average sale price at time of foreclosure was
$67,191 below assessed value. Additionally, foreclosed homes in Sherman Hill, Martin-
Hickman, Chautaqau Park, Waveland Woods, and Waterbury all had an average sale price of at
least $30,000 below assessed value. These differences potentially threaten neighborhood
stability and Des Moines tax base.




                                                                                               30
Table 4: Debt amount and assessed value




Source: Polk County Sheriff Sales, 2008-2009.
Note: Sales price reflects purchase price at sheriff sale.


                                                             31
Loan to asset ratio
        Des Moines’ dataset provides an opportunity to explore loan-to-value ratios for the
properties foreclosed upon in 2008-2009. Loan-to-value (LTV) ratios are calculated by dividing
the mortgage loan by the property’s value at time of purchase. The loan to value ratio allows
mortgagers to assess their risk when lending. Low LTV ratios are generally less risky
investments. Loans with high LTV ratios have a significant risk of default and are more costly to
borrowers (Ambrose and Sanders, 2002).
        The LTV ratio provides insights into lending practices in Des Moines and suggests
further areas for research. For this research, a high LTV is defined as a ratio of 1.25 or higher
(Dearborn, 2003). To determine LTVs for foreclosed homes in Des Moines, I compared the Polk
County property assessments with the debt at sheriff sale for 2008 and 2009 foreclosures. This
method varies from traditional LTVs which divide the amount of the original mortgage by the
property’s value at time of sale. Of the 1,343 properties to clear sheriff sale, the average loan to
value ratio was 1.15. These figures require more research as they contain variability and were
calculated based on the 2009 property assessment, and not at the time of loan origination. High
LTVs may reflect predatory lending practices or falling home values, property deterioration, a
decrease in neighborhood desirability, or major catastrophic events, such as damages associated
with the 2008 Midwest floods.
        Over 67 percent of properties had loan to value ratios above 1, meaning more was owed
on the loan than the property was worth (see table 5). These figures provide evidence on why
some borrowers may choose to default more easily. For homeowners facing a weak housing
market and falling property values, there may be little to gain by initiating a short sale. Short
sales allow homeowners to avoid foreclosure and poor credit, but do not necessarily erase the
loan’s debt, as homeowners may still owe on the mortgage after the sale.

Table 5: Majority of properties, at foreclosure, had loan to value ratios above 1.0

       Loan to Value Ratio  Count   Percentage
       LTV > 1.25               358
                                           26.66
       LTV > 1                  904
                                           67.31
       LTV ≤ 1                  439
                                           32.69
         Total foreclosures   1,343

      Source: Polk County Sheriff Sales 2008-2009 foreclosures.




                                                                                                 32
Comparison of average monthly home sales
         Des Moines City staff raised concerns about the impact of foreclosure on home resale
values. To analyze this effect, home sales data from the Polk County Assessor’s office were
assembled into monthly average sales prices. Figure 12 compares sales prices for foreclosed
homes and non-foreclosed homes. Monthly sales data for foreclosed homes appears as the red
line. The figure shows that over the study period, the average foreclosed home sold for more
than the average non-foreclosed home. The general trend reverses in the winter of 2009. This
may reflect speculation in foreclosed properties, investments from banks expecting a rebound in
the housing market, or a weakened housing market in non-foreclosed home sales. While there is
an overall trend, figure 13 breaks sales records down by neighborhood and shows much more
volatility. Neighborhoods showing more volatility are likely attributable to a lower number of
sales and less data points. For the BNA, DNA, and WPNA neighborhood area (#0), foreclosed
sales prices were below residential sales until 2009 when residential home sales dropped, then
rose along with foreclosed sales prices. The ACCENT neighborhood (#1) shows variability in
foreclosed and non-foreclosed sales data, with no clear trend. This sales data provide
information on neighborhoods where foreclosed homes sell along neighborhood sales trends or
deviate from these trends. Comparing sales data can help direct funds towards neighborhoods
with weak housing markets for foreclosed homes, and away from neighborhoods with high
demand.
         Figure 14 shows investments in properties after foreclosure. Particularly problematic are
the homes that sold for less than 80 percent of their assessed value after foreclosure. This serves
as a rough proxy for neighborhood desirability and investment. Areas with higher sales prices
may have stronger housing markets, and not require subsidy for foreclosed homes to recover.
The potential reasons for this decline in property value at time of purchase range from falling
housing values, to inflated assessments, to deteriorating structures. Neighborhoods with ratios
below 80 percent are Waterbury, Cheatom Park, Sherman Hill, Hillsboro, and Carpenter. These
neighborhoods vary greatly in the condition of their housing stock and housing values, but
nevertheless, show declines in property value after foreclosure. Even more significant are those
neighborhoods where sales prices were below 60 percent of assessed value; this includes Ewing
Woods-Evergreen and Martin-Hickman. Property assessments help to determine the city’s
property tax base. Des Moines must monitor changes in the assessed value as it represents a real
threat to the city’s ability to protect the health, safety, and general welfare of Des Moines’
residents.
         Indeed, these neighborhoods may pose an additional burden to the city as they require
more city services (police, fire, social services) and in turn have declining property values.
Vacant and abandoned properties in declining areas can attract criminal activity and result in
higher city service costs, while simultaneously reducing neighborhood desirability. Vacancy
increases risk of vandalism, fire, and overall property deterioration, destabilizes neighborhoods,
and imposes additional costs to the municipality. Decreasing sales values for properties in these
neighborhoods will over time drag down assessments and reduce property taxes generated for


                                                                                                 33
those homes and neighborhoods. As highlighted in the literature review, small incidents of
physical disorder from foreclosed properties can proliferate into neighborhood-wide
deterioration.

Figure 12: Monthly residential sales, foreclosed and non-foreclosed




Source: Azad Amir-Ghassemi, 2010.
Note: Monthly sales data for foreclosed homes appears as the red line, sales data for non-foreclosed homes appears
as a blue line. The cyclical nature of home sales is represented in winter, light gray bars and summer, dark gray
bars.




                                                                                                                 34
Figure 13: Neighborhood level change in residential sales




Source: Azad Amir-Ghassemi, 2010.
Note: Blue lines show foreclosure residential sales, red lines reflect non-foreclosure sales. Neighborhoods without blue lines had no foreclosures.




                                                                                                                                                      35
Figure 14: Sale prices after foreclosure, compared with assessed value




Note: Ratio is determined by dividing home sales price after foreclosure by assessed value.
Source: Azad Amir-Ghassemi, 2010. Foreclosed homes from Polk County Sheriff Sale, sales from Polk County Assessor’s office 2006-2009. Figure does not
reflect prices at sheriff sale.


                                                                                                                                                        36
Forecasting foreclosure
         The US Department of Housing and Urban Development (HUD) created a dataset to help
project foreclosures. Estimates of foreclosure rates were calculated using the number of
foreclosure starts in 2007 and January-June in 2008 at the statewide level, Federal Reserves
Home Mortgage Disclosure Act Data (HMDA) for high cost loans, unemployment rates from the
Bureau of Labor Statistics, and the Office of Federal Housing Enterprise Oversight Data which
provided falling home prices. HUD then utilized other available datasets to distribute the number
of foreclosures to the census tract level. Projections were compared with Equifax and Mortgage
Bankers Association foreclosure data, which showed a high correlation to actual foreclosure
rates, in many areas above .85 (with 1 being a perfect correlation). The final estimates for Polk
and Warren counties show a concentration of foreclosure in the City of Des Moines




                                                                                               37
Figure 15: HUD estimates of foreclosure starts, concentrated in the City of Des Moines




                                                                                         38
Figure 16: HUD foreclosure estimates with neighborhoods




A closer look at city projections with a neighborhood overlay suggest high foreclosure rates, of
7-12 percent in the following neighborhoods: ACCENT, Capitol East, Capitol Park, Chautauqua
Park, Cheatom Park, Drake, Drake Park, Fairgrounds, Fairmont Park, Highland Park, Indianola
Hills, King Irving, Laurel Hill, Magnolia Park, Martin-Hickman, Martin Luther King Jr. Park,
McKinley School/Columbus Park, Mondamin Presidential, Oak Park, River Bend, Somerset,
South Park, Union Park, and Valley High Manor.




                                                                                              39
Long-term impact of foreclosure
         What does the changing economy, uncertain job market and rising foreclosure rates mean
for families and communities? Homeownership has long been touted as desirable for all
Americans, seen as a source of pride, a means to increase neighborhood stability, improve
property values, and as a mechanism to accumulate wealth. The foreclosure and financial crisis
is likely to impact lending and home buying behavior long into the future. Tightening credit
markets have reduced the purchasing power of home buyers by requiring larger down payments,
higher credit scores, and lower debt-to-income ratios. High foreclosure rates have increased
demand for rental housing, a trend that is likely to persist. Additionally, builders have begun to
shift towards smaller homes with decreased square footage (Immergluck). The foreclosure crisis
has the potential to reduce homeownership rates in the long run (Immergluck). Yet,
homeownership also remains highly desirable for stable communities and families. In examining
multi-state lending costs of home purchases, Campen et al. found “homeownership remains the
best path to building financial assets and attaining wealth for most Americans.”
         The federal government’s neighborhood stabilization program’s $3.92 billion allocation
has been called “halting, uncertain, and inadequate” (Mallach, 2009) in the face of the rising tide
of foreclosed and vacant homes. These funds are simply not enough, nationally, to make a
significant impact. Instead, funds must be leveraged with other subsides and private capital.

Recommendations
        This exploratory analysis of foreclosure and vacancy in Des Moines seeks to help the city
become more competitive in future stabilization grant opportunities and target funds to
neighborhoods in need. The report provides recommendations for the City of Des Moines to
direct future efforts to neighborhoods and housing stock that are unlikely to recover from
foreclosure without subsidy. 2010 brought with it a steady stream of foreclosures, as of May 7,
2010, 280 properties in Des Moines cleared sheriff sale. Foreclosures have yet to decrease
significantly, with an average of 56 properties completing foreclosure per month in 2010, versus
the 2004-2009 average of 62 homes per month. USPS data indicate existing vacancy rates in
Des Moines’ inner city above 7 percent. Looking forward, HUD projects foreclosure rates of 7
to 12 percent in a substantial portion of the city (figure 16). Even if foreclosure rates drop
significantly, the city would be likely left with a surplus of deteriorating foreclosed structures
and vacant homes. Stabilization efforts should seek to create neighborhoods “where people
choose to stay or buy homes, rather than one in which people only live because they cannot
afford to live anywhere else” (Mallach, 2008). Des Moines competes across the metro area to
offer a high quality of life, and more than affordable homes. In 2005 Stockard Engler suggested
“Des Moines needs a new strategy for a different time. Applying limited resources more widely
requires a focus on the most pressing needs of the city and its residents—reversing the decline in
household income and purchasing power, and improving prospects for households that have had
fewer opportunities for economic advancement.” The city’s must consider the long-term impact
of foreclosure and vacancy on property values and the city’s tax base. The following should be
considered in targeting redevelopment efforts.

                                                                                                40
Focus rehabilitation and stabilization efforts on the key neighborhoods where properties sold 40
percent below assessed value after foreclosure
Foreclosures in Martin-Hickman and the Ewing Woods-Evergreen neighborhood in 2008-2009
resulted in a 40 percent discount below assessed value. This sharp decline threatens property
values in the neighborhood and, if the trend persists will, over time, endanger the citywide tax
base. To monitor these trends city staff should consider recording all sheriff sale transactions
from the Polk County Sheriff’s office to monitor debt, sales price at sheriff sale, and assessed
value.

Target efforts to the most vulnerable areas, unlikely to recover without subsidy
Staff should consider the 29 percent of 2006-2009 foreclosed homes that were not resold by
2010 as properties for subsidy. Properties with the longest vacancy periods, vacant for over two
years, should be examined. Homes that have not been sold over this period are unlikely to
rebound on the open market and may be desirable for demolition and redevelopment or
rehabilitation.

Recognize the impact of rising vacancy rates
Vacancies, foreclosure related or not, lead to property deterioration, increase social and physical
disorder, and reduce nearby property values. Revitalization efforts must consider the cumulative
effect of existing vacancies. The end goal, sale and reoccupation of foreclosed homes, is
compromised by nearby vacant properties. Existing vacancies make neighborhoods less
desirable for homebuyers. USPS data provide timely information on existing vacancies by
Census tract. This information should be utilized in redevelopment plans.

Leverage funds with existing resources
Des Moines’ budget constraints, reduced tax revenues, and rising demand for city services limit
the city’s ability to address foreclosure and vacancy. City staff may be able to leverage existing
funding pools (CDBG, HOME) in areas with high foreclosure and vacancy rates. Because
foreclosures tend to exacerbate existing problems—disinvestment, blight, and property
deterioration—leveraging funding pools presents opportunities to focus redevelopment efforts
for a longer duration than current NSP funds allow.

Utilize HUD data to project and monitor foreclosure trends
Along with continually monitoring completed foreclosures at the citywide and neighborhood
level, city staff should utilize HUD’s foreclosure projections. Iowa’s lengthy foreclosure process
makes it difficult to gauge the tide of defaulting loans and foreclosures. HUD data can help staff
anticipate where foreclosures can be anticipated at the Census tract level.




                                                                                                 41
Works Cited

Ambrose, Brent and Anthony B. Sanders. 2002. “High LTV Loans and Credit Risk.” Working
paper. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=355180

Apgar, William, and Mark Duda. (2005). Collateral Damage: The Municipal Impact of Today’s
Mortgage Foreclosure Boom. Washington, DC: Homeownership Preservation Foundation.
Retrieved from http://www.995hope.org/content/pdf/Apgar_Duda_Study_Short_Version.pdf.

Baxter, Vern and Mickey Lauria. (2000). Residential Mortgage Foreclosure and Neighborhood
Change. Housing Policy Debate, 11: 675-699.

Campen, Jim, Saara Nafici, Adam Rust, Geoff Smith, Kevin Stein, and Barbara van Kerkhove.
(2007). Paying More for the American Dream: A Multi-State Analysis of Higher Cost Home
Purchase Lending. Retrieved from http://www.calreinvest.org/system/assets/47.pdf

City of Des Moines. 2008. Staff Report: Foreclosure Process in Iowa.

Credit Suisse Fixed Income Research. (2008). “Foreclosure Update: Over 8 million Foreclosures
Expected.” Retrieved from http://www.credit-suisse.com/researchandanalytics.

Crews Cutts, Amy and William A Merrill. (2008). Interventions in Mortgage Default: Policies
and Practices to Prevent Home Loss and Lower Costs. Borrowing to Live. Freddie Mac working
paper. Retrieved from
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age_default_Frank.pdf

Dearborn, Lynn. (2003). Mortgage Foreclosures and Predatory Lending in St. Clair County,
Illinois 1996-2000. East St. Louis Action Research Project. Retrieved from
http://www.eslarp.uiuc.edu/publications/predlending.pdf

Engel, Kathleen C. and Patricia A. McCoy. (2002). A Tale of Three Markets: The Law and
Economics of Predatory Lending. Texas Law Review, 80, 1255-1381.

Eller, Donnelle and S.P. Dinnen. (2007. August 22). Foreclosure wave hits Iowa hard. The Des
Moines Register. Retrieved from http://www.desmoinesregister.com

Eller, Donnelle. (2010. February 20). U.S. Foreclosure numbers improve, but Iowa not
following. The Des Moines Register. Retrieved from http://www.desmoinesregister.com

Challenges and FDIC Efforts Related to Predatory Lending. Report No. 06-011. Office of
Inspector General. (2006). Retrieved from http://www.fdicoig.gov/reports06/06-011.pdf

Immergluck, Dan. (2009). The Foreclosure Crisis, Foreclosed Properties, and Federal Policy.
Journal of the American Planning Association, 75, 406-423.


                                                                                              42
Immergluck, Dan and Geoff Smith. (2006). The External Costs of Foreclosure: The Impact of
Single-Family Mortgage Foreclosures on Property Values. Housing Policy Debate, 17, 57-79.

Iowa Department of Economic Development. Neighborhood Stabilization Program: Eligible
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Lin, Zhenguo, Eric Rosenblatt, and Vincent W. Yao. (2009). Spillover Effects of Foreclosures on
Neighborhood Property Values. Journal of Real Estate Finance and Economics, 38: 387-407.

Madigan, Patrick. (2007). Subprime Foreclosures, presentation. Retrieved from
http://www.iowafinanceauthority.gov/documents/filelibrary/2007_housingiowaconference/octob
er_23/subprime_lending_part_ii_where_do_we_go_from_here/Patrick_Madigan.pdf

Mallach, Alan. (2009). Stabilizing Communities: A Federal Response to the Secondary Impacts
of the Foreclosure Crisis. Brookings Institute. Retrieved from
http://www.brookings.edu/reports/2009/02_foreclosure_crisis_mallach.aspx

Mallach, Alan. (2008). Tackling the Mortgage Crisis: 10 Action Steps for State Government.
Metropolitan Policy Program. Brookings Institute.

Moreno, Ana. 1995. Cost Effectiveness of Mortgage Foreclosure Prevention, Summary of
Findings. Family Housing Fund, Minneapolis, Minnesota. Retrieved from
http://www.fhfund.org/_dnld/reports/MFP_1995.pdf

Wilson, James Q. and George L. Kelling. (1982, March). Broken Windows: The Police and
Neighborhood Safety. The Atlantic.

Wisconsin Partnership for Housing Development and Stockard Engler Brigham LLC. (2005).
A Strategy for a New Time: An Evaluation and Recommendations for the Future of the Des
Moines Neighborhood Revitalization Program. Retrieved from
http://www.wphd.org/LocalGovernment/reports/2005/Des_Moines_Final%20Report.pdf




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